Economics of Pencil
Economics of Pencil Making
Just as with any other manufactured products, the economics of pencil manufacturing are driven by a number of factors.
These cost drivers include:
• cost of raw materials (wood, graphite, clay, brass or aluminum for ferrules, lacquer components, etc.)
• cost of parts or other finished components used to assemble the pencil
• cost of transportation and handling of various materials used and of the finished product to the factory
• cost of labor and benefits for the factory workers employees
• cost of energy
• cost of supplies used to maintain equipment
• cost of government regulations (taxes, duties, compliance to safety, labor or environmental rules)
• cost of capital (money used to buy equipment, to purchase and maintain inventories of raw materials, parts, supplies and finished product)
• cost of management
Pencil companies make a number of important decisions regarding these costs as part of their business. Some of the most important decisions include:
• the quality of product they wish to produce will impact which raw materials and component parts they will purchase
• alternative suppliers for raw materials
• whether to make internally or buy externally different component parts like slats, leads, ferrules and erasers or even semi-finished pencils from other pencil manufacturers (NOTE: Read about the famous essay I, Pencil to learn more about the important economic principal of specialization of production and how free market pricing system leads to best organization and allocation of resources into firms in an industry)
• where to locate their pencil factories which is driven by relative difference in costs between cities, states or countries for labor and materials, transportation costs for incoming materials as well as to the customer, regulatory and energy cost as well as duties and taxes
• the quantity of product to produce drives the level of investment required in the factory and inventories as well as can
Just as with any other manufactured products, the economics of pencil manufacturing are driven by a number of factors.
These cost drivers include:
• cost of raw materials (wood, graphite, clay, brass or aluminum for ferrules, lacquer components, etc.)
• cost of parts or other finished components used to assemble the pencil
• cost of transportation and handling of various materials used and of the finished product to the factory
• cost of labor and benefits for the factory workers employees
• cost of energy
• cost of supplies used to maintain equipment
• cost of government regulations (taxes, duties, compliance to safety, labor or environmental rules)
• cost of capital (money used to buy equipment, to purchase and maintain inventories of raw materials, parts, supplies and finished product)
• cost of management
Pencil companies make a number of important decisions regarding these costs as part of their business. Some of the most important decisions include:
• the quality of product they wish to produce will impact which raw materials and component parts they will purchase
• alternative suppliers for raw materials
• whether to make internally or buy externally different component parts like slats, leads, ferrules and erasers or even semi-finished pencils from other pencil manufacturers (NOTE: Read about the famous essay I, Pencil to learn more about the important economic principal of specialization of production and how free market pricing system leads to best organization and allocation of resources into firms in an industry)
• where to locate their pencil factories which is driven by relative difference in costs between cities, states or countries for labor and materials, transportation costs for incoming materials as well as to the customer, regulatory and energy cost as well as duties and taxes
• the quantity of product to produce drives the level of investment required in the factory and inventories as well as can